MyLab Economics with Pearson eText -- Access Card -- for Foundations of Economics
MyLab Economics with Pearson eText -- Access Card -- for Foundations of Economics
8th Edition
ISBN: 9780134518312
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 18, Problem 7IAPA
To determine

To explain:

The fair-fixing scheme which is a result of the equilibrium outcome of an oligopoly cartel game and the reason the cartel survived.

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Case study 1.8: Mobile phone networks Predatory roaming They were in the bank, toting guns, as lots of money happened to go from the vault. That was the essence of last week’s claim by Mario Monti, the European Union’s competition commissioner, that mobilephone operators have gouged customers by colluding to raise rates for roaming – ie, when you use your mobile phone abroad. Mr Monti’s case is circumstantial, but he says the network operators will have to answer it. 324 STRATEGY ANALYSIS In December Mr Monti’s office issued a report on the market for roaming. Most countries in the European Economic Area (EEA), the report found, have a roaming market that is ripe for collusion. The product is undifferentiated, and the number of sellers small. Pricing in the wholesale market is transparent, making it easy for a market leader to raise prices, and for other operators to take the hint and follow suit. The costs of running mobile networks do not vary that much. As a result, says the…
JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week's profits, and that neither one would consider shutting down the route in the foreseeable future. (a) What is the appropriate economic model to study price competition in this market? (b) If you use Nash equilibrium to make a prediction, what…
JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week's profits, and that neither one would consider shutting down the route in the foreseeable future. (a) What is the appropriate economic model to study price competition in this market? (b) If you use Nash equilibrium to make a prediction, what…
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